Credit Repair Help on the Way! CFPB Aims to Reduce Credit Card Fees

One of the biggest hurdles to consumers being able to properly handle their finances and keep their credit card accounts in good standing is often the way in which lenders charge high fees to those who do not have good credit scores, which may perpetuate a cycle of more difficulties.

Fortunately, the federal watchdog agency tasked with protecting Americans' finances recently finalized a rule that is designed to more effectively limit the amount of fees borrowers face when opening an account, and as such it might be a good way for consumers to go about the business of credit repair. Specifically, Consumer Financial Protection Bureau's final rule states that the fees charged to consumers within the first year of the account opening cannot exceed more than 25 percent of the card's total limit, meaning that one with a $1,000 maximum cannot have fees of more than $250 in that initial 12 months.

Why this can help consumers
In many cases, it used to be that borrowers would face extremely high fees in opening such accounts for the first time, which may have made it far more difficult to deal with the account in a financially responsible way; all these added charges essentially started borrowers behind the 8-ball somewhat.

But with the rule now finalized, consumers can enter into such agreements with the definitive knowledge that they will not face any hidden fees that will be applied to their accounts soon after they're opened. That, in turn, allows them to more wisely approach credit card use in general, and potentially repair the standing they may have damaged with borrowing missteps that might have come through no fault of their own. These days, lenders are extending credit cards to many whose scores may have taken severe damage in recent years, and the opportunity that provides borrowers is appreciable.

The two most significant factors when dealing with credit ratings overall are a borrower's demonstrated ability to meet all payment deadlines on time and in full, and the amount of debt carried on such accounts. As such, a credit card provides a perfect vehicle for boosting a score relatively quickly and easily. As long as borrowers are not borrowing too much at any one time, their score could skyrocket over a period of just several months or a year.

Payment history makes up 35 percent of a person's score, and thus all a borrower has to do to make sure that 35 percent of the rating is immaculate is to ensure all bills are paid on time. In addition, the amount of credit being borrowed at any one time, as a percentage of the account's total limit, makes up another 30 percent of a rating.

Therefore, borrowers who want to ensure that their credit scores remain high will strive to keep their debts so low that they can pay them off in full every month. This means that they don't carry a balance — lenders generally allow for consumers to have debts of as much as 30 percent of their limits before they see some erosion of their rating — from one month to the next, and can always be assured of being able to meet deadlines and payment minimums.

Some things to keep in mind
Of course, consumers should also remember that because they have lower credit scores than they might have prior to their financial difficulties, it's likely that the cards they acquire will come with more fees and higher interest rates, making it all the more important to keep these accounts under tight control. Limiting balances will keep interest fees from piling up, in addition to buoying credit scores and making it easier to handle fees when they are applied.

Further, it should be noted that while the CFPB's initial proposal also included application fees in the 25 percent figure, the finalized rule does not. As a consequence, consumers with particularly low credit scores might face costs of as much as a few hundred dollars just to open the credit card they may seek, and that can make borrowing more expensive, even before it starts. Therefore, when looking into which cards to sign up for, cash-conscious consumers may want to take the time to assess all the costs involved with opening each account they may be considering.

And finally, consumers who want another way to potentially boost their scores relatively quickly might want to consider ordering copies of their credit reports and checking them over closely for any unfair markings that may be having a negative impact on their standings. If any such entries are discovered, working with a credit repair company may help to correct the issue more expediently than the borrowers could have on their own, and return their ratings to where they deserve to be.